{"title":"Economic and financial integration, capital controls, and risk sharing","authors":"Michael Donadelli, Ivan Gufler","doi":"10.1111/ecca.12545","DOIUrl":null,"url":null,"abstract":"<p>We analyse economic (EI) and financial (FI) integration, and their effects on international consumption risk sharing (RS) across 40 countries, including 21 developed (DEV) and 19 emerging (EM) markets, from 1995 to 2019. Utilizing the metric for EI and FI of Akbari <i>et al</i>. (2020, <i>Journal of Financial and Quantitative Analysis</i>, <b>55</b>, 2270–303), and various RS proxies, we find that increasing EI reduces RS in EM, while FI enhances it. Conversely, there is no evidence that EI or FI influences RS in DEV, contradicting theoretical predictions from international business cycle models. These results remain robust when controlling for trade and financial openness and capital flow restrictions. Additionally, we investigate the direct influence of capital controls on market integration. Relaxing equity inflow controls significantly enhances market integration, specifically boosting EI in DEV, and FI in EM. In contrast, equity outflow restrictions and controls on other asset categories do not significantly impact market integration. Our findings challenge the idea that simply removing legal restrictions on international capital flows is sufficient or necessary to achieve greater market integration and improved RS. This underscores the perspective that adjustments in capital controls alone may not ensure macro-financial stability.</p>","PeriodicalId":48040,"journal":{"name":"Economica","volume":"91 364","pages":"1482-1520"},"PeriodicalIF":1.6000,"publicationDate":"2024-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Economica","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/ecca.12545","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
We analyse economic (EI) and financial (FI) integration, and their effects on international consumption risk sharing (RS) across 40 countries, including 21 developed (DEV) and 19 emerging (EM) markets, from 1995 to 2019. Utilizing the metric for EI and FI of Akbari et al. (2020, Journal of Financial and Quantitative Analysis, 55, 2270–303), and various RS proxies, we find that increasing EI reduces RS in EM, while FI enhances it. Conversely, there is no evidence that EI or FI influences RS in DEV, contradicting theoretical predictions from international business cycle models. These results remain robust when controlling for trade and financial openness and capital flow restrictions. Additionally, we investigate the direct influence of capital controls on market integration. Relaxing equity inflow controls significantly enhances market integration, specifically boosting EI in DEV, and FI in EM. In contrast, equity outflow restrictions and controls on other asset categories do not significantly impact market integration. Our findings challenge the idea that simply removing legal restrictions on international capital flows is sufficient or necessary to achieve greater market integration and improved RS. This underscores the perspective that adjustments in capital controls alone may not ensure macro-financial stability.
期刊介绍:
Economica is an international journal devoted to research in all branches of economics. Theoretical and empirical articles are welcome from all parts of the international research community. Economica is a leading economics journal, appearing high in the published citation rankings. In addition to the main papers which make up each issue, there is an extensive review section, covering a wide range of recently published titles at all levels.